Precious Metals

By now everyone and their kitchen sink has speculated on what caused the great precious waterfall which started on April 12 and continued for the next four days. The factual reason for the biggest gold down days in history will likely remain unknown. In fact, in a sea of unfounded opinions, the only thing missing so far has been an informed opinion on what is really happening in some market - be it the paper of physical, especially in the aftermath of the unprecedented scramble to buy physical, not paper, gold and silver. So to avoid further speculation, and focusing on fact, here is what the CEO of Texas Precious Metals has to say about the state of the actual physical market, not the one where one can create "gold" and "silver" out of thin air. The bottom line? "The physical silver market is, in a word, ugly" and more importantly, "Last week, we turned away business in excess of 100,000 ozs of silver because of stock depletion." Botton line: please keep selling your paper metals - the demand in the physical space has never been greater, and is absorbing all the available inventory at current prices.

As we noted last week, all around the world the demand for physical precious metals has soared in the days following paper gold's price collapse. As the FT reports, from Shanghai and Hong Kong to India, one dealer noted, "Older members who have been in the business for 50 years haven’t seen such a thing." The feverish buying has left many of Hong Kong's banks, jewelers, and even its gold exchange without enough gold to meet demand. Record volumes on Shanghai's exchange, lines outside Beijing jewelry stores, and the proximity of Hindu festivals drove "Indian physical demand and premiums," higher as the worlds two largest gold buying nations prompted one exchange CEO to note that we hadn't, "seen this kind of gold rush in over 20 years." It would seem the concerted effort to collapse paper prices in London and New York has provided the rest of the world a multi-decade buying opportunity.

The state of Arizona may become the second state to use gold and silver coins as legal tender.  Last week, Arizona lawmakers passed a bill that makes precious metals legal tender. Arizona is the second state after Utah to allow gold coins created by the U.S. Mint and private mints to be used as currency. Utah has had the law on the books for the past 2 years and is working on a system for using the precious metals as currency. The Arizona Senate Bill 1439 would allow the holder of gold or silver coins or bullion to pay a debt. However, the coins must be issued by the U.S. government or approved by a court, like an American Eagle Coin. Oddly the government does not require that persons or business must use or accept gold or silver as legal tender in contravention of the U.S. Constitution. The sponsor of the bill, Republican Sen. Chester Crandell, would need a final state Senate vote after approval by the House, and if passed the law would not take effect until 2014. Crandell said, "The whole thing came from constituents".

Let's get down to the facts of the recent banker gold & silver paper price smash and the lies about the banker gold & silver paper price smash being propagated by the mass media and banking shills like Paul Krugman so everyone can understand why this smash will blow up in the face of the very bankers that executed it at some point down the road. Retail individuals AND global institutions all around the world are finally beginning to understand that physical ownership of gold and silver is how to counter banker fraud & intervention into the gold and silver markets and this realization is going to produce massive blowback.

There have been several recent developments that have flown in the face of both neo-liberalism and ordo-liberalism and thrown investors off balance.  Discuss.  

Instead of frightening people away from gold and silver, the takedown of paper gold seems to have had just the opposite effect.  People just can't seem to get enough. The crash of the price of paper gold on Monday has unleashed an unprecedented global frenzy to buy physical gold and silver.  All over the planet, people are recognizing that this is a unique opportunity to be able to acquire large amounts of gold and silver at a bargain price. Will this massive run on physical gold and silver soon lead to widespread shortages of those metals? Premiums over spot prices are rising everywhere already. And once reports of physical shortages of gold and silver become widespread, it is going to absolutely rock the financial world.  But this is what happens when you manipulate free markets - it often has unintended consequences far beyond anything that you ever imagined. The following are 10 signs that the takedown of paper gold has unleashed an unprecedented global run on physical gold and silver...

Gold doesn’t blow stock bubbles. It doesn’t manipulate data. Gold doesn’t control interest rates to benefit the big banks at the expense of everyone else. Gold doesn’t lie under oath, nor does it channel the public’s money into foreign banks.

Back in 1980, just as the gold price blasted upwards past $800/oz, buyers reportedly lined up in droves at various bullion dealers to participate in the rally. Investment analyst Jay Taylor writes, “I remember 1980… there was panic buying of gold by people in the streets of New York City. They were lined up around the block to buy gold and Krugerrands at that time.” That flurry of buying ended up representing a classic top. As gold failed to move higher, the speculative frenzy soon reversed into a despondency that dragged gold into a twenty year bear cycle. For those investors who bought at the top, it was a hard lesson learned.

With the entire world's attention focused on Boston, the FX carry pair traders knew they had a wide berth to push futures, courtesy of some EURUSD and USDJPY levitation overnight, which started following news out of Japan that the G-20 would have no objection to its big monetary stimulus - of course they don't: they encourage it: just look at the levitation in the global wealth effect stock markets since it started. The Friday humor started early: "Japan explained that its monetary policy is aimed at achieving price stability and economic recovery, and therefore is in line with the G20 agreement in February," Aso told reporters. "There was no objection to that at the meeting." "We explained (at the G20 meeting) that we're convinced that the measures we're taking will be good for the global economy as they will help revive Japanese growth," Aso said. And by global economy he of course means stocks. Shortly thereafter, when Europe opened, the real levitation started as someone, somewhere had to offset what would otherwise be a 100 point plunge in the DJIA just on IBM's miserable results alone. Sure enough what better way to do that than with a wholesale market "tide" offsetting one or two founder boats.

Here is Part 2 of my article “The Argument of Bitcoins v. Gold Laid to Rest, originally released at my blog, www.theundergroundinvestor.com on April 9, 2013. Yes, money that is real and tangible is really better than money that is just a digital valuation backed by air.

Correlation is not causation; but coincidence means you're on the right path. Looking at the charts of Stocks, Commodities, and Precious Metals, we wonder just what it was that President Obama said at his 11amET White House meeting last Thursday...

With the financial experts claiming, some gleefully, that gold has "lost its safe haven status" in the aftermath of its biggest tumble in 30 years, many commentators thought (hoped?) that the dramatic price drop would steer people away from gold ownership. To my eyes, the past week has all the earmarks of a high-gloss propaganda campaign complete with well-placed anti-gold stories in the media and the careful use of language aimed at sowing doubt about gold's ability to be a store of wealth. But for those who consider gold a store of value, the recent gold slam is a gift: an invitation to purchase more sound money with fewer units of paper currency. In other words, a sweet deal.  Gold and silver on sale and the world is taking advantage.

The most recent gold bear raid has vastly enriched the bullion bankers, once again, at the expense of everyone trying to protect their wealth from global central bank money printing. The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending, and "investing" in stocks, bonds, and other financial assets.  But not equally so - he has been instrumental in distorting the landscape towards risk assets and away from safe harbors. That's why a 2- year loan to the US government will only net you 0.22%, a rate that is far below even the official rate of inflation. After the two years is up, you are up $44k (interest) but out $260k (inflation) for net loss of $216,000. That wealth, or purchasing power, did not just vanish: it was taken by the process of inflation and transferred to someone else. This explains, almost completely, why the gap between the rich and everyone else is widening so rapidly, and why financiers now populate the top of every Forbes 400 list.  There is no mystery, just a process of wealth transfer of magnificent and historic proportions; one that has been repeated dozens of times throughout history.

While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).

A high level overview of the drivers of the capital markets.